Alternative ETFs in the Inverse Volatility Category

Analyst Report

This product offers inverse exposure to an index comprised of mid-term VIX futures contracts, making it a unique way to bet on declines in anticipated equity market volatility or to potentially exploit structural issues in VIX futures markets that lead to poor long-term performances for many products in the Volatility ETFdb Category. This ETN won't be useful to most investors, thanks to the daily reset feature and somewhat complex investment objective. But for those who believe that the long-term potential from shorting an index comprised of VIX futures is significant, this product might be quite appealing--especially to those with the stomach for some short-term volatility. it should be noted that because the VIX often experiences big swings, this product can also exhibit significant short-term volatility.
ZIV is an ETN, which means that investors with a position in this product are exposed to the credit risk of the issuing financial institution (but don't have to worry about tracking error). It should also be noted that this ETN offers exposure to an index comprised of VIX futures; that means that ZIV won't necessarily correspond perfectly to movement in the spot VIX (a benchmark in which direct investment is not possible). Because VIX futures markets are often contangoed, there can be significant gaps between changes in the spot price and returns available through a futures based strategy. ZIV is one of several products designed to exploit the contango in VIX futures markets, delivering short exposure to an index that can experience major return erosion as a result of the monthly "roll" process. This product is designed with sophisticated, risk-tolerant investors in mind; those who don't match most of those criteria should probably steer clear of this note.
There are several products that offer inverse exposure to VIX indexes, and these ETNs are far from identical. Most focus on indexes comprised of short-term VIX futures contract, as contango is often the steepest towards the short end of the futures curve. These products, which include XIV, XXV, and IVO, may be more volatile than ZIV (though the participation ratios of the latter two may translate into smaller moves). XIV resets exposure on a daily basis, while both XXV and IVO seek to offer inverse exposure over the life of the notes.

Realtime Rating

Realtime Rating Summary

The adjacent table gives investors an individual Realtime Rating for ZIV on several different metrics, including liquidity, expenses, performance, volatility, dividend, concentration of holdings in addition to an overall rating. The "A+ Metric Rated ETF" field, available to ETFdb Pro members, shows the ETF in the Inverse Volatility with the highest Metric Realtime Rating for each individual field. To view all of this data, sign up for a free 14-day trial for ETFdb Pro. To view information on how the ETFdb Realtime Ratings work, click here.

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Charts

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